Full Financing of a Rehab

[Jerry Mayer]

I am preparing to rehab my first project. It has plenty of profit in the deal. I need advice as to how to get 100% financing. I have no money to put into the deal but plan on putting 80% of all profit into saving for future deals. I have the time to put into this but not the cash. I have found plenty of profitable deals and wish to do 10-12 rehabs a year.

Any suggestions on how to get this deal with no personal money in?

[Jon Holdman]

IMHO this will be VERY, VERY hard to do. The only way you're doing this is with a combination of loans. If you can borrow 70% of ARV from a HML and your purchase plus rehab cost is also 70% of ARV you stand to make a profit of about 13% of ARV. You will also need about 15% of ARV of your own cash to complete this deal. If you have none of your own cash then you'll need to come up with that 15% from some other source. A number of options to do this:

• Loan against another asset
• Personal loan
• Credit cards (for suppliers that will take credit cards)
• Credit card cash advances (for suppliers that won't)
• 401k loan
• Loans or equity investment from private lenders (people you personally know)
• Sell something
• Get a second job

In addition, finding those 70% deals is difficult.  Nearly impossible in many areas, like around here.  If your deal is at 75%, then you'll need another 5% of your own cash.

Many HMLs now require a minimum down payment.  If so, that's also out of pocket.

If you are getting funding by an HML and you run out of cash and can't finish the project the HML is going to take the property. They're not going to "work something out" or do a loan modification. Its like playing poker. You might have a winning hand but if you don't have the money on the table you're out of the hand. I've been the lender on a deal like that. I don't know the exact details but I believe the rehabber had about $30K of their own cash into the deal when they defaulted and had to walk away. If that was $30K you borrowed from friends or family or on a credit card, that's still going to need to be paid back.